Why Europe is breaking ranks with US on China bank

Europe's support for a China-led international bank is a sign that confidence is waning in U.S. leadership on the global stage and recognition of the need to forge closer ties with an increasingly powerful Beijing, analysts say.

According to media reports this week, Germany, France and Italy have followed the U.K. and joined the $50 billion Asian Infrastructure Investment Bank (AIIB) set up by China last year and is viewed as a rival to the Washington-based World Bank.

"This says as much about the loss of U.S. influence in international political and economic affairs as it does about the growing clout of China," Nicholas Spiro, managing director at consultancy Spiro Sovereign Strategy in London, told CNBC.

U.S. and China flags along Pennsylvania Avenue in Washington, D.C. on Jan. 17, 2011.
Andrew Harrer | Bloomberg | Getty Images

"The Europeans have been losing faith in U.S. leadership for some time now and their willingness to become founding members of the AIIB is partly a reflection of this," he added.

Analysts say the context here is important to understand the tension over the AIIB.

For years, China and other major emerging markets such as India have argued for a greater say in global financial institutions such as the International Monetary Fund (IMF) and World Bank to reflect their growing economic strength.

China has grown rapidly in recent decades to become the world's second biggest economy and many economists expect it to overtake the U.S. as the world's leading economy over the next few years.

Read MoreWhy China won't be Asia's dominant power

In the face of slow reform of the World Bank and IMF, China is founding its own international institutions and, for Europe, it makes sense to get involved now and shape these, analysts say.

"The reality is that the voting weights in the IMF and World Bank do not reflect the relative economic strength of China and India," said Nomura's Senior Political Analyst, Alistair Newton.

China-backed AIIB won't be a rival: IHS

The U.S. government meanwhile has argued that Western countries could have greater sway on the new bank if they worked together outside and urged higher lending standards.

Analysts said there might also be some frustration in Europe by reluctance in Washington to reform the World Bank and IMF.

"If you're not a member of this new institution you risk being carved out of one of the fastest growing regions in terms of growth, infrastructure development and the geopolitical influence that goes with it," Rajiv Biswas, Asia-Pacific economist at IHS, told CNBC last Friday following news that London would join the AIIB.

"By being a founding member, Britain can help set the rules and if it doesn't it can't help in governance structure," he added.

Read MoreUS accuses UK over China stance

Some analysts added that rather than rival the World Bank, the AIIB could complement it – since the new body would have some of the same members as the World Bank.

"I think the IMF and World Bank will remain the dominant institutions," said Neil Shearing, chief emerging market economist at Capital Economics. "These conversations about China's role in global financial institutions have been going on for the past five years which shows how long it takes to make progress."

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